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Cambodia stuck on money laundering blacklist

Motorists drive by the National Bank of Cambodia earlier this year, which is responsible for monitoring the Kingdom’s financial sector for money laundering.
Motorists drive by the National Bank of Cambodia earlier this year, which is responsible for monitoring the Kingdom’s financial sector for money laundering. Heng Chivoan

Cambodia stuck on money laundering blacklist

Cambodia has been listed as the highest-risk nation in ASEAN, and ranks sixth globally, for its susceptibility to money laundering and terrorism financing in a recently released global index that charts the vulnerability of 149 nations.

The 2016 edition of the Basel Anti-Money Laundering (AML) Index, issued annually by the Switzerland-based Basel Institute on Governance, states that Cambodia has structural vulnerabilities within the financial sector, a weak judicial system and suffers from high rates of corruption.

Assessed on a risk scale from zero to 10 – with 10 being the highest risk – Cambodia ranked 7.89 on the index’s overall score. This was the worst ranking among all 10 ASEAN nations, and sixth globally behind Iran, Afghanistan, Tajikistan, Uganda and Guinea-Bissau.

The ranking comes from data compiled by Transparency International, the World Bank and the World Economic Forum.

Selvan Lehmann, project manager for the Basel AML Index, said additional factors that placed Cambodia at the top within ASEAN included the US State Department’s 2016 International Narcotics Control Strategy report, which classified money laundering as a primary concern in the Kingdom, giving it a full 10 out of 10 negative ranking.

“By combining these various data sources, the overall risk score represents a holistic assessment addressing structural as well as functional elements in the Anti-Money Laundering framework,” he wrote in an email.

Lehmann added that if Cambodia reduced its levels of corruption, allowed for public transparency in finances and the allocation of its national budget, the Kingdom could lessen its risk and repeatedly poor scores on the annual index.

However, he noted that while Cambodia had made some gains by improving slightly from 2014 to 2015, going from third-highest risk to sixth, this year’s reforms were “not sufficient enough to significantly improve the overall money laundering risk situation”.

Preap Kol, executive director of Transparency International Cambodia, said that transparency in the banking and financial sector needs to be strengthened not just through “enforceable regulations,” but also “effective monitoring of the enforcements”.

He advocated that the government should institute a law on investor transparency. “Adopting a law that requires investors to disclose their ownership – a law on beneficial ownership – can help improve the Cambodia ranking and reduce the risk,” he said.

While Cambodia was removed from the watch list of the Financial Action Task Force (FATF), an international anti-money laundering and counterterrorism financing body, in February 2015, its resolve to monitor its financial institutions has been called into question.

Last October, the Post revealed that the Cambodian Financial Intelligence Unit, an arm of the National Bank of Cambodia (NBC), had not investigated a single local financial institution since 2008, citing a lack of resources.

NBC officials could not be reached for comment yesterday.

In Channy, CEO of Acleda Bank, rejected the Basel Institute report’s concerns about the financial sector, pointing out that for commercial banks under strict regulation by the central bank, “money laundering is nearly impossible” because banks have implemented the “Know Your Customer” process of identifying clients and their financial origins.

“We are not alone in getting funds in and out of Cambodia because as commercial banks, we have to operate with internationally regulated financial institutions, and if we are found to be careless we could lose business and our license,” he said.

Nevertheless, he advocated that the NBC needs to look further into the informal market of money exchange, whether that be through diamonds, gold or currency transactions, while also closely monitoring local specialised banks and microfinance institutions.

“The NBC needs to regulate all financial sectors and monitor them more properly,” he said, while noting that it would prove difficult to monitor the physical trading of commodities in informal markets.

CNRP lawmaker Son Chhay, a long-time anti-corruption crusader, said yesterday the rapid expansion of banks and financial institutions coupled by Cambodia’s long-standing “loose and corrupt governance” system had increased opportunities for money laundering in Cambodia.

Additionally, he said that with China cracking down on its own massive corruption, dirty money is pouring into Cambodia while the casino industry, banks and the real estate boom provide easy camouflage for illicit assets.

“It’s hard to believe that the government takes money laundering as a major concern, especially when it wants the cash coming into the country to help themselves and their businesses and political interests,” he said.

“The government needs to have the commitment and the political will to stop money laundering,” he said, “but they don’t have the will so it doesn’t matter what regulations are imposed.”

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